## Facts

- C-ART, a Hong Kong exporter, sold goods to New York Merchandising Company (NYMCO) for delivery in California and arranged ocean shipment through Hong Kong Islands Line America, S.A. (HKIL).
- For each shipment, HKIL issued a bill of lading to C-ART in Hong Kong.
- C-ART used the bills of lading in a documentary payment arrangement: C-ART presented the bills to a bank to obtain payment rights, and the bank transmitted the original bills to NYMCO upon payment processing.
- The bills of lading required delivery at the California port of discharge only upon presentation of the original, properly endorsed bill of lading.
- Despite the written terms, the parties had a prior practice in which HKIL often released cargo to NYMCO upon a “bank guarantee” rather than upon presentation of the original bill.
- For the shipments at issue, HKIL released the goods to NYMCO based only on NYMCO’s unsecured “corporate guarantee,” without requiring the original bills of lading.
- NYMCO filed for Chapter 11 bankruptcy shortly after receiving the goods and before C-ART was paid.
- C-ART sued HKIL in admiralty for misdelivery; the district court awarded C-ART $185,997.65, and HKIL appealed.

## Issues

1. Whether HKIL committed misdelivery by releasing goods to NYMCO without requiring the original, properly endorsed bills of lading as a condition of delivery.
2. Whether a prior course of dealing involving release against guarantees excused or modified HKIL’s express bill-of-lading obligation to deliver only upon presentation of the original bill.
3. Whether NYMCO obtained title upon delivery to the carrier such that C-ART lacked a recoverable interest for misdelivery.
4. Whether C-ART was merely NYMCO’s buying agent, limiting C-ART’s ability to recover from the carrier.

## Decision

- The Ninth Circuit affirmed the judgment for C-ART.
- HKIL was liable for misdelivery because it delivered cargo without obtaining the original, properly endorsed bills of lading required by the contract of carriage.
- The parties’ earlier practice of using guarantees did not displace the express delivery condition in the bills of lading, and delivery based solely on an unsecured corporate guarantee did not excuse noncompliance.
- The court rejected HKIL’s arguments that title passed to NYMCO upon loading and that C-ART functioned only as NYMCO’s buying agent.
- The damages award of $185,997.65 was upheld.

## Legal Principles

- A bill of lading functions as a receipt, a contract of carriage, and documentary evidence of title; it controls the right to demand and receive delivery.
- A carrier that delivers cargo without production of the original, properly endorsed bill of lading breaches the contract of carriage and commits misdelivery.
- As bailee, a carrier must deliver only to the party entitled under the bill of lading; voluntary delivery without the bill places the insolvency risk on the carrier absent a valid contractual defense.
- A course of dealing involving delivery against guarantees does not override an express bill-of-lading requirement without a clear, enforceable modification.
- Bills of lading drafted by carriers are construed strictly against the carrier when interpreting delivery obligations.
- In documentary sale/payment arrangements, title and possessory rights may remain with the shipper until proper bill-of-lading presentation and payment steps occur, supporting the shipper’s right to recover for misdelivery.

## Conclusion

The Ninth Circuit held the ocean carrier liable for misdelivery when it released cargo to the buyer without requiring the original bills of lading, concluding that prior guarantee-based practices did not modify the contract’s express delivery condition and that the shipper retained a sufficient interest to recover its loss.


C-ART, Ltd. v. Hong Kong Islands Line Am., S.A., 940 F.2d 530 (9th Cir. 1991)